PHH Corp. sold $250 million in bonds bearing a 4 percent annual interest rate, the lender and fleet manager said Wednesday.
The company plans to use $241 million in proceeds from the sale to pay off debt.
The bonds can be converted to PHH stock at a rate of 48.7805 shares per $1,000 in principal, or $20.50 per share.
Should PHH's stock breach $20.50 per share, the bondholders would convert their bonds to stock and the existing shares of stock would be worth less.
To prevent this, the company bought options to buy its own stock, so that if the bonds are converted, PHH can buy shares to prevent the pool of outstanding stock from expanding.
This means the existing shares will not be diluted unless the stock reaches $27.20.
This hedge cost $28 million.
PHH shares closed at $18.44 Wednesday.
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